BRASILIA, Feb 28 (Reuters) - Brazil’s consolidated primary budget surplus narrowed in January from a year ago, marking a weak start for the government’s effort to boost savings and regain credibility with investors this year.

The primary budget surplus, which represents the public sector’s net revenues over expenditures before debt payments, totaled 19.921 billion reais ($8.53 billion) in January, down from a surplus of 30.251 billion reais in the same month last year.

The markets had expected a surplus of 21.2 billion reais in January.

The Brazilian government’s budget is undergoing close scrutiny from investors after President Dilma Rousseff promised to rein in public spending to avoid a downgrade by credit ratings agency Standard & Poor‘s.

Earlier on Friday, the central government posted a primary budget surplus of 12.954 billion reais ($5.55 billion) in January, narrower than the December surplus of 14.5 billion reais. The central government result includes federal ministries, the central bank and the social security system.

“The government got off on the wrong foot with this result,” said Flavio Serrano, senior economist with Espirito Santo Investment Bank in Sao Paulo. “It was a disappointing result that harms government efforts to regain the trust of investors.”

The weak fiscal result indicates that the government likely withheld payments and transfers to municipalities to bolster its performance in December, Serrano said.

MARKETS REACT

Both Brazil’s currency and stocks dropped on Friday while yields on interest rate futures rose amid market disappointment with the fiscal results.

Brazil’s fiscal balance of payments has deteriorated rapidly under Rousseff amid a slew tax breaks combined with increases in government spending in an effort to revive the economy.

Rousseff has relied on billions of dollars in extraordinary revenues from corporate tax settlements to make up for the country’s weakened fiscal position, a situation that has raised worries about the actual state of the country’s finances.

Shrinking primary surpluses have widened the country’s overall budget deficit, which includes interest payments, to a three-year high of 3.28 percent of gross domestic product. In 2012, the deficit was 2.48 percent of GDP.

Brazil’s overall deficit totaled 10.478 billion reais in January.

TARGET IN JEOPARDY?

Last week, the Rousseff administration pledged to freeze 44 billion reais ($18.8 billion) in spending to meet a more “realistic” fiscal savings goal this year, equivalent to 1.9 percent of GDP. Still, most economists in a Reuters poll said the government would likely miss that target.

In the 12 months through January, the primary surplus was equivalent to 1.67 percent of GDP, down from 1.9 percent of GDP in December. The primary budget surplus is a gauge of debt service capacity.

Treasury chief Arno Augustin said an increase in expenditures and transfers to local governments dragged down the primary surplus result in January, but reiterated that the administration is committed to meeting its annual goal.

“It is wrong to say that the fiscal result in January makes it more difficult for us to deliver the goal,” Augustin told reporters in Brasilia.

“This result is in line with our budget plan. It is by no means an indication of the start of a negative trend.”

The government has fallen short of its consolidated primary surplus target in the past two years.

The rapid erosion of Brazil’s finances have raised fears that the country may not be able to keep reducing its overall debt burden, which was more than halved over the last decade.

The public sector’s net debt was equivalent to 33.3 percent of GDP in January, down slightly from 33.53 percent of GDP in December.